“The bitterness of poor quality remains long after the sweetness of low price is forgotten” – Benjamin Franklin
In a world driven by Amazon, where product reviews are plentiful, and returns are easy, the purchasing landscape has changed. It has impacted not only B2C, but also B2B environments. For both, it is common practice to shop around for the best price. Why pay more for something when you don’t have to? But there is more to this story.
Sure, you can find a cheaper product, but does a reduced cost mean reduced quality? Sometimes that is the case. In the consumer world, it is frustrating to receive a low-quality product, but you return it and move on. In the B2B world, a low-quality product is more than a small inconvenience, it can be expensive, time consuming, and detrimental to many aspects of your company. This is where the dreaded Total Cost of Ownership (TCO) comes into play.
Total Cost of Ownership can be a daunting topic that few want to talk about or event think about. However, it’s no secret that TCO can have a snowball effect. One decision can result in field failures, unhappy customers, supply chain issues, and time and money wasted – all things that are not fun to think about.
Have you ever bought something that you thought was from a reputable, high-quality company, but when you take it out of the packaging, you find it’s a piece of junk? Did that reflect poorly on the company in your eyes? No one wants their company to be looked upon as hypocritical – they’re selling a quality product, but buying the lowest price components…
Think about it: if your company prides itself on selling a quality product, why would you risk the integrity of that product with a cheap component?
How TCO Affects Each Department:
Purchasing:
While having a quality supply chain is nice, often times performance reviews are based on money and how much you’ve saved the company. Remember, what you might be saving in money, you’re paying for in time and effort when your suppliers are not easy to work with, or when you have a high “hassle factor”, aka different time zones and language barriers.
Price, quality, & delivery are all important but when you are buying (literally) thousands of products, the most valuable thing should be a supplier that doesn’t cause issues.
Engineering:
Product development is a long, arduous process. Working with suppliers who understand your process, your requirements, value collaborative engineering, and bring strong ideas to the table while helping with problem avoidance (and if necessary, problem resolution) is invaluable. At times, engineers are asking for the moon, but have the budget for a short train ride. While the lowest cost option can be attractive, the needed support from suppliers can be a contributing factor in choosing a supplier to work with.
Manufacturing:
You need parts to fit (and it would be preferred if they are easy to assemble), you’re not always included in the design process but the problems fall on your desk when things don’t go together the way they are supposed to, or when issues present during testing. Pulling parts off the line and spending time to work with Quality to solve quality issues messes up your schedule, causes rework, scrap, and even delays your time to market. Cost is less so a factor than the impact of poor-quality products causing downtime on the assembly line.
Marketing & Sales:
Though these are different departments, both have the voice of the customer to satisfy – if the product doesn’t work how the customer wants or even expects it to, it will be hard to market and sell. A low-quality product put on the market could quickly shift your job from promoting a quality image to damage control. When you sell a product and it doesn’t work, you risk your credibility; and when your credibility is on the line, so is your livelihood. It is exponentially easier to sell a product you believe in than one you know is causing issues.
Quality:
Similar to Purchasing, you need a supplier that doesn’t cause issues; we’ll say it again, what you might be saving in money for a cheaper part, you’re paying for in time and effort down the road if it fails. You get all of the responsibility of dealing with bad parts, line-down situations, and you spend extra time in meetings when things aren’t going right.
Auditing international suppliers can be expensive, and when issues arise, the last thing you want to do is fly overseas to help rectify the problem. Qualifying a new supplier is an important process because if/when product issues do arise, you need a supplier you can trust to quickly resolve problems, provide correct documentation and test protocols.
Every department will feel the effects of a product failing, so shouldn’t ensuring a product will succeed be a role for every department? Sure, TCO might not be a topic that is fun to think about, but, bottom line…taking it into consideration will eliminate issues! And who doesn’t want that?!
Something to ponder… Everyone wants the price to be low, the quality to be high, and the service to be high. Unfortunately, it is hard to find all 3 in a supplier, if you can only have 2, which two do you choose? High quality. High service. Low cost.
Interested in seeing just how much you can save when you avoid a low-quality product? This interactive worksheet will do the calculations for you.